Canada’s ban on foreign homebuyers came into effect on Jan 1st, 2023. The new measure bars most non-residents and foreign commercial enterprises from buying residential properties in Canada for the next two years. Recently a few changes were announced to the policy.
James and Denny go over the new exceptions and share how they will directly affect Vancouver’s real estate market.
This episode will focus on the foreign home buyer ban and the new amending regulations, purchasing vacant land workarounds, students buying properties, the rules with work visas, purchasing properties for development and how these exceptions will affect the market.
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Read the Transcript Here
Hi everyone, I’m James Garbutt. And I’m Denny Dumas. And this is the Garbutt Dumas Real Estate Podcast.
Denny: January 2023, there was a few big changes in real estate, one of which was the ban on foreign buyers across Canada. There’s a number of exemptions there. But the government since has come out in the last couple of weeks and announced a few more exemptions making it a little bit easier. And some would say why did they put this ban in effect if they’re just gonna change it and that is a great question. But we wanted to just share the, the new exemptions, and maybe just briefly discuss what they mean, who would qualify under, under these exemptions, etc. So…
James: Let’s talk about why they do the exemptions. The logic is they don’t want the prices to run you know, like they don’t want I mean, there was in 2016 and Vancouver, we saw this, I think it was tailend of 2015 to, in some areas like 2017. There was a good market run and there’s a lot of talk that a lot of the buyers were a lot of buyers for high end homes in Richmond and west side of Vancouver, maybe, maybe the West Van and North Shore as well, were just foreign buyers. And you know, for the properties and clientele, for the properties we sell and the kinds clients that we typically work for, we didn’t see a lot of them. But we did see a small percentage of foreign buyers and but we did get the trickle down effect. And so it was a very active year in some of those markets.
And that kind of put on the radar, well, if we let foreigners buy here freely, prices might get astronomically out of control. And then they made some changes because I think they realize that sometimes foreign investment is a good thing because we need more housing. But let’s get into it Denny, I mean, I mean overall, since 2017, we don’t experience many foreign buyers, and even in that period in the suburb markets that we commonly sell in it was a very small percentage, but there was some markets that were more prominent.
Denny: Maybe just the history on the taxes and the bans too. 20, up to leading up to 2016 there was no restrictions. 2016, I believe is August they put an a 15% tax on someone who is not a Canadian citizen or not a Canadian resident purchasing property. That increased I believe two years later to 20%. And as of January 2023 there’s a two year ban on foreign buyers. The new restrict or the new exemptions. So let’s get to the, we’ll do the most curious one last.
So non Canadians can now buy vacant land. Vacant land does not apply under the foreign buyer ban. Purchasing property for the purpose of development no longer applies. What that means is like if you were to assemble three or four homes, my understanding of this exemption is that you can’t rent them out. You can purchase land, you can purchase multiple homes for the purpose of building condo building or townhomes or whatever that may be. But you can’t hold on to them if you’re not… it’s in gray area.
James: Yeah, like they don’t want foreigners buying a bunch of houses and holding on to them as rentals. They want them to develop and create new housing further, so they’re penalizing collecting rent as a tactic to incentivize them to develop sooner. It’s my guess at the consequence of losing housing.
Denny: Exactly. So on that note, a lot of these types of land assemblies are purchased in corporations and with the foreign buyer ban, the exemption was 3% of the corporation can be internationally owned, no more than 3% and that has been increased to 10%. The interesting one, which probably will get people the most frustrated I think, like Canadians and consumers, is now if you have a work or student visa that has more than 183 days left on it, you can now purchase property without being a Canadian citizen or Canadian permanent resident.
James: Is that where you get those headlines of a student owning a $10 million home and Shaughnessy? Is that what you’re referring to?
Denny: We saw quite a few of those in 2016, didn’t we?
James: You know, I think a lot of those areas but I mean those headlines are valid and frustrating for some obvious reasons but a $10 million home is so out of touch with most people.
James: I am more excited about the government saying that those $10 million homes can be, I don’t know, a dozen row homes or townhouses, I would love to see the first application Shaughnessy that takes advantage of density.
Denny: Do you think any of these new exemptions move the ticker, will change anything in the last, in the next 12 months?
James: I could see land. You know, I think that foreign buyers were exempt from commercial real estate and anyway. Like, if you were allowed to buy commercial real estate and land is arguably kind of a commercial way that it’s going to be processed and developed and, you know, hopefully created into homes or something else that’s needed. So for land Yes, from the development side. I just don’t know that we’re old enough. I don’t know how many Development Corporations have 3% versus 10% foreign owners, but I could see a lot of the money coming from abroad. Yeah, that’s, that’s not not my world Denny. But I could see land doing an uptick.
I mean, our exchange rate, you know, if you buy a million dollar property in Canada, it costs in US funds at $750,000. You know, there’s when you do the exchange for some other areas, there is an argument to say that land is pretty appealing as an investment for some of the people so we’ll see, you know, I do feel we need more development. And anything that encourages or incentivizes a little more development is a good thing. And if we, if we need foreigners to invest in us to make that happen, great. But if you have them do a land assembly, take over 12 homes and leave them vacant because you don’t want them to collect rent, it’s gonna create some stories.
Denny: I think that’s what I’m excited about too is allowing people to invest in Canada through redevelopment, through more housing is a good idea. I think where people can get frustrated here is the student visa one. But I mean my personal opinion is I mean, those stories are pretty few and far between.
James: Yeah, it’s not prominent, right? Like it’s, they get blown up. A lot of clickbait there.
Denny: Of course. Yeah. And so I don’t think that is really changing the inventory or the prices of homes throughout Greater Vancouver. I don’t think that’s affecting your everyday consumer who you know, has normal jobs and has one child and a dog and is looking to upsize. That’s not affecting your purchase or sale experience. But I think the development is a good, is a good idea. Why would we turn away people that want to help our city grow with new housing because we desperately need it.
James: I recall, going back to 2016 and I know some neighborhoods in Burnaby blew up, like in terms of the prices got very expensive. And there’s one particular example that I used as Upper Deer Lake. Let’s call it a 1950s, 1960s post war bungalow style home. I think it’s on on a, I’m gonna just say it’s a 7000 square foot lot even though it’s not. It’s like it was either in the sixes or…anyways lot size’s irrelevant. The house is a postwar call it, it’s like an average home in a above average neighborhood. A below average home in an above average neighborhood on a quiet street. And there is a sale for one of these 1950s, 1960s homes. I think it was on Burns Street in Upper Deer Lake and it went for $1.95 million. And at that time for that type of home like two years prior that home would have been $1.1. And in three years prior or four years prior would have been like $900 or $800,000 like it went through a very rapid gain in a short period of time.
And when that home was $1.9 million and you drove 10 minutes down Canada Way to Glenbrook North, New Westminster, the same home on the same lot would have been about $1.3. So there is about a $600 to $650,000 difference for an area in Upper Deer Lake that was more prominent to foreign buyers. That was more on target for foreign buyers to an area in New West that was more targeted by local buyers in Apples to Apples homes. 10 minutes down Canada Way, there was a $600 to $650,000 difference.
That difference today is probably in the neighborhood of $300,000 and maybe $250. And what my thought was from that is well, one: that was an obscure moment where there was an anomaly in prices for homes that were very close together. It was created by what felt like this foreign buyer wave. And when, I when I did the math at the time, it appeared that in areas that were most prominently hit were up 20% above others and I remember talking to you about it and telling people that I think, the what before they implemented a foreign buyer tax. It felt like there was a 20% appreciation above what should have been market value in some of those areas like it was like 20% above.
But once the tax was like, the tax was implemented and what year was it? 2017?
Denny: 2016. 2016 was first one.
James: 2016 was first one. Since then we’ve gone through a few different market cycles. The market settles out and things have adjusted that are back to kind of like making sense again. You can see why this upper Deer Lake home is actually you can see is X and you can see why the Glenbrook North home is Y and the difference makes sense. But there was a valid period of time where it didn’t and at that time there was a thought, well, if this keeps happening and the wealthy of the world want to invest in Vancouver real estate, our prices could get absolutely outrageous. And I didn’t think they’d go like you know, like, I don’t know $3 million for a postwar bungalow, but definitely out of touch for, for locals. So there was a valid fear. I see why they did it. Yeah, I just wanted to mention that there was weird times in our history.
Can you recall anything that stood out to you? I mean, we had a few instances where they announced the foreign tax that we saw one of our listings, devalue $100,000 over a weekend. We also shame the government for implementing that tax without delay. Applying it to pending, pending sales because there was a frenzy of Realtors that that had accepted firm offers with deposits in place and then they announced that the tax applied and people are on the hook for firm and binding contracts and then the some of these buyers had to pay an extra 15% if they didn’t change the completion date to before the deadline. It was a mess.
Denny: Luckily, we have some good lawyer, notary contacts that would help us out because there was literally like a five day window where you had to move your completion date to. And obviously, there was a bunch of people trying to do this. And lawyers were charging five grand for conveyancing instead of $1,200 bucks. Just because of how crazy the demand was. They couldn’t do it all. But yeah, that was a wild time. And have you ever seen another policy like that that’s come in and they’re like retroactive starting Monday. Boom.
James: No, not that devastating. Yeah, I mean, any if you, you heard the news. I remember, you’re a Realtor, that it was like “Oh, I wonder what this, if this affects me?” and you start going through your deals. And you realize one of them is affected. And it’s a scramble, like it’s a straight scramble, your hope. I mean, fortunately, there was a lot of willing parties that understood and you’d have willing sellers that realize the buyer for their home, got shocked by a 15% surprise. And a lot of people were willing to adjust but there was probably stories where they weren’t. Yeah, it’s, there’s been a lot of fun history in the last 10 years in Vancouver real estate.
But overall, I mean, for our end we don’t see a lot of foreign buyer action. I don’t know if it’s gonna change in years coming down the road. But if you’re listening to this in 2032, and they’re allowing foreign buyers to freely buy houses in Vancouver, there’s a chance that prices may run up.
Denny: There’s a definitive possibility that prices will be higher.